I previously explained how Obama was trying to seize BP; one of the readers sent me an e-mail asking how the US government could seize a foreign firm. Which seems to be a valid question on the surface and thought I would further explain the process. In short, I believe Obama's strategy is to make BP liable for so much debt, that the only way that it can pay is to hand over the keys to the US government.
Obama could nationalize all of BP's US operations without too much of a problem, just like Chavez nationalized portions of Exxon and other companies. In short, all domestic employees, equipment located in the country, and rights to the oil fields could be nationalized in a fairly straight-forward process, but I think Obama sees the opportunity to go after even more by saying that the company is liable to the US and therefore the entire company should revert to US government ownership. This seems an amazing statement, but Robert Reich and others have already called for this. Even Fox News is reporting that BP may go bankrupt because of the crisis, which is really an unhelpful exaggeration (they later pointed out that BP is good for the money, the only real question is can they obtain the money on a timeline to keep people happy - what they failed to explain is that the only reason that they would not be able to raise the money is because investors do not know what the full level of liability will be right now and it does not make sense to loan them money IF the US government is about to come in and seize them).
Let's look at the facts:
BP has annual profits of about $20 bill per year. This should give them (under normal times) a net worth of about $200 billion. This is in line with their market cap prior to the spill (as it should be) of about $190 billion.
As reported in the Telegraph,
A worst-case scenario for total costs is $37bn, according to Credit Suisse. However, the market has wiped $70bn off the company's value. "This is well above the worse-case estimate for the final cost and appears to be a massive over-reaction," said Killik analysts.
While $37bn is certainly a major expense and would cause them to loose money for a year or two, it is certainly a problem that they can recover from quite easily. So why has the market wiped so much away from the corporate value, which dropped to just above $90bn on Wednesday (6/9/2010)? I believe this is directly due to the rhetoric emanating from the White House. In other words, the current market speculation is that the cleanup may only cost $37 bn, but the government actions against BP might cost a lot more; no one knows how much - but the current bet is that it will result in the $153 billion (i.e., $190 - 37) company losing more than a third of its value. Another way to look at it is that the government response is costing the company roughly twice as much as the actual spill!
Thus, at a minimum, I think Obama plans are to take over all US operations, but he is also setting the stage to impose additional penalties so that US operations will not be sufficient to cover the costs. If Obama can lift the price tag high enough, then he has the argument to go after the whole company. Of course, that is not the way it should be... If the company can't pay, it should simply declare bankruptcy and all creditors should get in line - but as we saw with the auto bailout, Obama does not like standing in line with other creditors...